[Congressional Record Volume 140, Number 12 (Wednesday, February 9, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: February 9, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                        FISCAL IRRESPONSIBILITY

                                 ______


                          HON. PHILIP M. CRANE

                              of illinois

                    in the house of representatives

                      Wednesday, February 9, 1994

  Mr. CRANE. Mr. Speaker, every year that Congress fails to balance the 
budget mortgages more of our children's future to pay for our fiscal 
irresponsibility today. In an attempt to put the Government's fiscal 
house in order, many of my colleagues have supported higher taxes. 
However, experience shows that this is a fallacious approach to deficit 
reduction, as Congress spends on average $1.59 for every $1 tax 
increase. The real cause of the deficit, then, is not under-taxation, 
but over-spending. As my colleagues consider the deficit and 
legislation calling for higher levels of Federal spending, I urge them 
to read the following article by Paul S. Hewitt, which appeared in the 
Winter 1994 issue of ``Policy Review.''

      Owe, Susannah, How Much the National Debt Will Make You Cry

                          (By Paul S. Hewitt)

       Two monster tax increases in 1990 and 1993 were imposed on 
     American families in the name of deficit reduction. The 
     medicine didn't work.
       America's national debt is still spiralling out of control. 
     At the beginning of fiscal 1994, the gross national debt 
     stood at $4.4 trillion, with projections that it will grow by 
     another $311 billion this year. Net national debt--taking out 
     money the federal government owes to itself, such as the 
     Social Security trust fund--stands at $3.3 trillion.
       Congress, whose most important responsibility is to control 
     taxing and spending, isn't even close to controlling the 
     federal government's structural deficits. The projected 
     deficit for FY 1994 is $253 billion, rising to $359 billion 
     for FY 2000. That's not even counting the additional 
     budgetary costs of the Clinton health plan, which economists 
     such as Martin Feldstein of Harvard University have estimated 
     could increase deficits by as much as $120 billion a year.


                        cash you could have used

       What does this mean for you? Last year the average American 
     household paid $1,700 in taxes to finance interest on the 
     national debt--another $450 was financed by borrowing. It was 
     money you needed. A 25-year-old who saves $1,700 every year, 
     earning 6 percent interest, can amass savings of over 
     $265,000 by age 65. Alternatively, you might have used this 
     cash for Christmas gifts, charitable donations, or to help 
     with your college bills. It is the vacation you wanted to 
     take, the boat you wanted to buy, the suits you wanted to 
     replace but couldn't.
       These subtractions from your paycheck are going to get 
     larger. Net interest on the national debt amounted to $198 
     billion last year, making it the third largest program in the 
     budget--after Social Security and defense. This is more than 
     the combined budgets of the Departments of Commerce, 
     Education, Labor, State, and Transportation, plus NASA and 
     the Environmental Protection Agency. Interest costs are 
     expected to grow 65 percent over the next 10 years, again not 
     counting the Clinton health plan. Unless you expect your 
     income to rise by more than 65 percent over the same period, 
     you will have to pay a higher proportion of your earnings to 
     finance Washington's debt binge.
       But you're caught in a Catch-22, because skyrocketing 
     deficits make it harder to finance the investment we need to 
     raise long-term living standards. Federal borrowing as a 
     share of net private savings soared from a mere one percent 
     in the early 1960s to a whopping 71 percent during 1991-1992. 
     As a result, America has the lowest savings rate in the 
     industrialized world and depends on foreign savers for its 
     net investment. That may have been all right in the 1980s 
     when Japanese and German pension funds had surplus cash to 
     invest here. But those days are over; where are we going to 
     get capital now?


                           $900 billion more

       President Clinton and the media like to blame our debt 
     problems on the Reagan and Bush administrations. The national 
     debt did grow by $2.6 trillion from 1981 through 1993--a 
     threefold expansion over the $709 billion accumulated in the 
     country's first 201 years. Half of the debt before 1980 was 
     incurred to fight World War II, and about a third of the new 
     debt in the Reagan-Bush years financed the military buildup 
     that won the Cold War. The remaining new debt would have been 
     lower if most of President Reagan's proposed domestic 
     spending cuts hadn't been pronounced ``dead on arrival'' in 
     the Congress. Whatever the reasons, each household's share of 
     the national debt has grown by $28,500 since 1980, each 
     individual's by $10,400.
       Meanwhile, over the next five years, the Clinton 
     administration plans to increase the national debt by another 
     $1.12 trillion--or about $12,100 per household. Again that's 
     not counting the cost of the health plan. It also assumes 
     that long-term interest rates stay low. Should interest rates 
     return to the levels just five years ago--a possible response 
     to simultaneous economic recoveries in Japan and Western 
     Europe, or simply a resurgence of inflation--annual debt 
     service costs could rise by another $70 billion, or $760 per 
     household.
       There is one overriding reason for the explosion of the 
     national debt, and that is the skyrocketing of payments for 
     the elderly. Over the next decade, the Congressional Budget 
     Office (CBO) forecasts that annual federal spending will grow 
     by roughly $900 billion. This will require an additional 
     $8,700 in tax revenues and deficit spending per household by 
     year 2003. Ninety-two percent of this growth is accounted for 
     by entitlement programs and interest payments on the publicly 
     held debt. Social Security, Medicare, Medicaid payments to 
     the elderly, and federal pensions account for 60 percent.
       Indeed, because most federal social spending is on 
     retirees, pressure on taxes and deficits is tied closely to 
     the number of Americans in old age. The elderly population 
     will explode when the enormous baby boom cohort reaches the 
     age of entitlement in 2007. That's when the real debt crisis 
     begins.
       During the second decade of the next century, spending on 
     the elderly under current law is projected to grow by $150 
     billion to $200 billion per year in 1992 dollars. By 2030, 
     according to government estimates by the trustees of the 
     Social Security and Medicare systems, the combined cost of 
     Social Security and Medicare systems, the combined cost of 
     Social Security and Medicare (Parts A and B) will equal 48 
     percent of payroll, assuming output per worker grows as fast 
     as it did in the 1980s.
       Congress meanwhile, is doing virtually nothing to address 
     the problem. The National Taxpayers Union Foundation's (NTUF) 
     Congressional Budget Tracking System Survey found that just 
     two out of the 332 bills introduced in the last Congress to 
     cut spending (compared with 1,594 that sought to increase 
     spending) would have trimmed old-age benefits. These bills, 
     drafted by former congressman Leon Panetta, a Democrat who is 
     now the director of the Office of Management and Budget, and 
     Republican Senator Hank Brown (R-CO), drew only a few 
     cosponsors--mostly moderate Democrats. Neither actually 
     specified how to cut Social Security Medicare, or federal 
     pensions. Instead, both measures sought to ``cap'' programs 
     elliptically referred to as ``entitlements'' or ``mandatory 
     spending.'' How they would have worked is anyone's guess.


                         kasich-penny pinching

       In the current Congress the outlook for spending reform is 
     brighter, though not much. Of the 271 spending reduction 
     bills introduced in the first session of the current 
     Congress, four now seek to trim entitlements. Meanwhile, 
     proposed cuts in both entitlements and discretionary spending 
     were combined in a late-session bipartisan amendment by 
     Representatives John Kasich (R-OH) and Tim Penny (D-MN), 
     which would have reduced cumulative deficits over the next 
     five years by 9 percent. That this important measure failed 
     by just eight votes, despite strong opposition from the White 
     House, Democratic leadership, and senior citizen lobbies 
     (based, revealingly, on the claim that deficits are needed to 
     fund health benefits), could be taken as a sign that Congress 
     is getting serious about deficit reduction. Still, it was 
     just a first step, and Congress refused to take it.
       In the early 1980s conservatives argued that we could grow 
     our way out of the deficit--or, technically speaking, that 
     deficit-funded tax cuts would cause revenues to grow faster 
     than the ensuing rise in debt service costs. As far as it 
     went, the argument had merit. However, it depended implicitly 
     on the administration's ability to hold down spending, which 
     never happened. Despite repeated attempts under President 
     Reagan to stem the growth of Social Security, Medicare, 
     Medicaid, and federal pension outlays, the Republicans were 
     singularly unsuccessful in their efforts to restrain 
     entitlement growth. Under George Bush, they all but gave up.
       Now a bipartisan consensus may be beginning to emerge. To 
     cite one example: Democrat Bill Bradley and Republican Alan 
     Simpson, joined by seven other Senators of both parties, have 
     asked the Congressional Budget Office to investigate 
     potential savings from the means-testing of entitlements 
     benefits.
       There is mounting evidence that the public will support 
     politicians with the courage to lead us into entitlement 
     reforms. NTUF's July 1993 Survey of Retirement Confidence 
     found that 62 percent of Americans over age 25 would rather 
     see cuts in Social Security and Medicare than yet another tax 
     increase. Fully 70 percent supported ``reducing Social 
     Security and Medicare benefits to high income recipients,'' 
     an increase of 7 percentage points over the year before. 
     Eighty-one percent of Americans ages 26 to 44 express little 
     or no confidence that Social Security and Medicare promises 
     will be honored, three times more than among Americans 55 and 
     over.
       One potential reform is to couple means-testing of Social 
     Security and Medicare benefits, with deep new tax incentives 
     for personal retirement saving. A recent CBO study suggests 
     that as much as $150 billion in entitlements benefits went 
     last year to households with incomes over $50,000. Reductions 
     in this subsidy could greatly relieve pressure on federal 
     spending while increasing the incentive to save and invest. 
     Such a policy has several advantages. It would raise the 
     anemic national savings rate and foster growth. It would 
     address the anxieties of the middle-aging cohorts who will 
     soon dominate the electorate. It would reinforce the basic 
     truth of capitalism--that those who can do for themselves, 
     should. And finally, it would retard the growth of spending, 
     at last enabling America to outgrow its oppressive interest 
     burden.
       Every dollar of federal spending now adds 21 cents to the 
     net national debt. Thus, in FY 1993, Social Security added 
     $57 billion to the national debt; defense, $55 billion; 
     Medicare, $27 billion; Medicaid, $14 billion; and all 
     domestic discretionary spending combined, $43 billion. If you 
     are a beneficiary of a federal program--whether it be a 
     Social Security check or cotton support payments or student 
     loans--you should be aware that you are adding more than one 
     dollar to the national debt for every five dollars you 
     receive.
       Future retirees should also be aware of the precariousness 
     of Social Security. More than $1 trillion (a quarter of the 
     $4.3 trillion gross national debt) is owed by the Treasury's 
     General Fund to the many trust funds that populate the 
     government's books--among them: Social Security, with $366 
     billion in reserves; Civil Service Retirement, $319 billion; 
     Medicare, $149 billion; and Highway, $22 billion. These 
     assets are no more than bookkeeping entries; they consist of 
     I.O.U.'s from the Treasury. A series of court decisions 
     dating back to 1937 have established that the Treasury's 
     debts to the trust funds need not be honored. Congress can 
     liquidate the assets of a trust fund, and any obligation to 
     dispense funds from them, at its discretion. Once future 
     retirees realize this, there will be growing political 
     support for smaller retirement benefits in exchange for 
     greater retirement security.
       Cutting spending is in vogue these days, and it is 
     important to seize every opportunity to abolish the many 
     unnecessary discretionary programs that populate the budget, 
     from tea tasting to helium reserves. But together, these 
     programs do not add up to much nor are they the cause of the 
     explosive growth in national debt.
       Only through reform of entitlements can Americans rebuild 
     their communities on the twin pillars of thrift and 
     enterprise, communities where citizens are self-reliant and 
     secure in their retirement expectations, where assembly lines 
     for products invented here never go elsewhere for want of 
     investment capital, and where interest on the debt grows more 
     slowly than the economy, revenues, and personal income. The 
     sooner we reform entitlements spending, the better for us 
     all.

                          ____________________